Hematopoietic and endothelial stem cells are derived from a common embryonic precursor termed the hemangioblast. The genetic cascades that regulate differentiation of the hemangioblast to hematopoietic and endothelial stem cells are largely unknown. Much of embryonic development is coordinately regulated by temporal and spatial expression of transcription factors, such as the Homeobox (Hox) gene family. We and others isolated a divergent Hox gene termed Hex (or Prh) that in the adult is preferentially expressed in all myeloid and B-cells but not T-cells. It is down-regulated during differentiation. During embryogenesis, Hex is an early marker of endothelial development, and is essential for endodermal organ development. Using in vitro Hex -/- embryonic stem (ES) cell differentiation and chimeric mice, we have found that Hex is essential for differentiation of the hemangioblast to definitive hematopoietic progenitors. We also found that forced expression of Hex in T-cells, where it is not normally expressed, inhibited thymic T-cell development, and maintained expression of myeloid markers. These data generated the underlying hypothesis of this proposal, that Hex regulates the differentiation of the hemangioblast to hematopoietic progenitor cells. This hypothesis will be tested by answering 3 specific questions: 1) What is the biochemical mechanism by which Hex induces hematopoietic development? 2) Where does Hex fit in the hierarchy of transcription factors and cytokines that are essential for hematopoietic development? 3) What is the spatial and temporal location of Hex's function in the differentiation of the hemangioblast during embryogenesis? Answering these questions will elucidate the mechanism by which Hex regulates the formation of the first hematopoietic cells, and will place it in a spatial, temporal and transcriptional context within the developing embryo. It will also provide novel insight into the molecular regulation of embryonic hematopoiesis.